Fraud Cases: Violations of Generally Accepted Accounting Principles (Gaap)

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Fraud Cases: Violations of Generally Accepted Accounting Principles (GAAP)



In July 2002 the Sarbanes-Oxley Act was passed by the U.S. Senate by a vote of 98 to 0. The bipartisan support for the legislation emanated directly from the investing public’s lack of tolerance for financial statement fraud. Not surprisingly, when formulating its post-Sarbanes technical audit guidance, the Public Company Accounting Oversight Board (PCAOB) made it clear that detecting fraud must be the focus of the audit process. Consider that in the board’s first internal control standard (Auditing Standard No. 2), fraud was mentioned 76 times. The PCAOB has continued its emphasis on detecting fraud in its revised internal control standard, Auditing Standard No. 5. As their fundamental responsibility, financial statement auditors must determine whether economic transaction activity has been accounted for by the audit client in accordance with Generally Accepted Accounting Principles (GAAP). In this spirit, the cases in this section are designed to illustrate different types of recent GAAP violations.

The case readings have been developed solely as a basis for class discussion. The case readings are not intended to serve as a source of primary data or as an illustration of effective or ineffective auditing.

Reprinted by permission from Jay C. Thibodeau and Deborah Freier. Copyright © Jay C. Thibodeau and Deborah Freier; all rights reserved.


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